Eesti Pank Strategy out to 2027

Like all the central banks of the euro area countries, Eesti Pank primarily contributes to the sustainable development of the national economy by keeping inflation moderate. It achieves this by taking an active role in setting the monetary policy of the euro area. It takes monetary policy decisions following thorough analysis of the processes that affect the euro area as a whole and the Estonian economy alone. Eesti Pank works together with other central banks and with research institutions and universities in Estonia and abroad to provide high-quality analysis and research. It maintains dialogues with the banks and other businesses to gain an immediate feel for the development of the Estonian economy.

Average inflation in the euro area is currently above its target of 2% and is likely to remain there in the near future. To reduce inflation pressures, the Governing Council of the European Central Bank set a course to tighten monetary policy, which also means raising monetary policy interest rates.

Eesti Pank contributes to the sustainable development and prosperity of the Estonian economy by advising the government on key economic policy decisions. The knowledge needed to do this comes from the everyday analysis by the central bank of the economy and the financial sector, and from its participation in the work of the Eurosystem and in economic policy debates in the European Union.

On top of analysing the current state of the economy and forecasting its development over the coming years, understanding the long-term impacts of economic policy choices has become increasingly important. Eesti Pank has over time focused its attention on the sustainability of the state finances and their role in encouraging stable development in the economy. The central bank is now turning more attention than before to the choices around climate change and climate policy.

Monetary policy is implemented through various transactions. The commercial banks in Estonia have access to loans and deposit facilities under the agreed Eurosystem terms. Before lending, the financial soundness of banks as counterparties and the quality of their collateral are assessed. Demand from Estonian banks for standard and non-standard monetary policy loans has increased and the central bank has increased its capacity to make monetary policy transactions efficiently, which includes purchasing assets and accepting various forms of collateral. The central bank works together with market participants to diversify the Estonian capital market and increase the range of acceptable collateral.

Eesti Pank invests in financial assets and uses the income earned to fund its own activities. Low interest rates have made it harder for Eesti Pank to earn income from its reserves. Eesti Pank has reacted to changes in the operating environment and has spread its risks by adding further asset classes to the investment portfolio. The aim of long-term investment activity by the central bank is to earn sufficient income from investment and from monetary operations to improve the capitalisation of Eesti Pank and its capacity to absorb any losses that could arise from risk scenarios being realised. A more distant goal is to bring the capitalisation of Eesti Pank into line with the average of the central banks in the Eurosystem. Eesti Pank has started to apply the principles of sustainable and responsible investment in response to climate change when investing its reserves.

One goal of Eesti Pank is to safeguard the functioning of the financial system as a whole. Responsibility for supervising banks in the euro area lies with the European Central Bank working together with the supervisory authorities of member states, which is Finantsinspektsioon in Estonia. Eesti Pank is responsible for macroprudential supervision and for analysing and assessing the risks to the Estonian financial sector.

Eesti Pank has developed a macroprudential framework and set capital requirements and requirements for issuing housing loans in order to reduce the risks of the banks. To analyse better the risks to financial stability, the central bank is increasing its own analytical capacity. If growth in the economy is accompanied by growth in household indebtedness, Eesti Pank considers applying additional capital buffers for the banks. The central bank pays particular attention to the risks in the housing market and if necessary can strengthen its requirements for issuing housing loans.

Eesti Pank administers payment and settlement systems and develops and oversees the payments market. The goal in this is to work with market participants to promote a payments market in Estonia that is efficient, safe, and supportive of innovation. This critically needs the functioning of payment systems to be ensured, risks to be minimised, and payment systems to operate in accordance with the requirements of the overseer. Eesti Pank carries out these tasks by working with authorities and market participants and helps to align the legal framework for the payment environment and payment systems.

Eesti Pank works with other central banks of the euro area to manage and develop joint infrastructure for monetary policy and securities transactions, collateral management, and interbank payments, including instant payments. Eesti Pank has an independent system and the technical organisation for settling domestic interbank payments in an emergency. Eesti Pank participates in the digital euro research project of the Eurosystem in order to develop the payment environment, and to support the creation of innovative payment solutions and the independent functioning of the European payments market.

Eesti Pank issues the euro banknotes and coins that are the legal tender of the euro area. Eesti Pank ensures that cash circulates without interruption by making sure that there are sufficient euro banknotes and coins in circulation and cash reserves are maintained, and that cash is of the appropriate quality and protected against counterfeiting. As a central bank, it serves the banks, companies and organisations that are part of the cash circulation cycle, and makes sure that cash can reach the public and businesses. Reducing the carbon footprint of cash production and circulation is becoming increasingly important.

Eesti Pank is the statistics agency that compiles the official statistics for the Estonian financial and external sectors and for the financial accounts. The central bank supplies the public with good quality, reliable, up-to-date and impartial information that is openly available for use in analysis, forecasting and policy setting. Eesti Pank is also involved in compiling statistics for the European economic and monetary union and in work to develop the statistical methodology.

The central bank has two priorities for the near future. The first is to participate in designing the integrated reporting framework for the monetary financial institutions across the euro area and establish it in Estonia. The second is to develop the new information system for statistics, which will make the central bank better ready to cope successfully with the increasing volumes of data and additional statistical work.

The central bank needs a professional and effective organisation for it to carry out its functions successfully. Eesti Pank prioritises the openness and inclusiveness of the organisation. In 2022, Eesti Pank joined the Equality, Diversity and Inclusion Charter of the European System of Central Banks and the Single Supervisory Mechanism. The wellbeing, equal treatment and engagement of its staff is very important for the central bank, but joining the charter helps express and apply those principles more clearly in personnel policy and in management of the organisation. Eesti Pank favours the employment of staff with different backgrounds, qualifications, and experience, while at the same time maintaining its high professional and values-based standards.

The staff of Eesti Pank are guided in their work by the four values of trust, expertise, community and flexibility.

Eesti Pank supports the long-term careers of staff, which includes letting them gain various skills and experience and move between jobs within the bank or in other organisations. Eesti Pank offers its employees flexible work with opportunities for development and career progress. New challenges for the bank are to improve the digital skills and environmental awareness of the staff, and to maintain the sense of community both in the office and while working remotely.

Under the Eesti Pank Act, Eesti Pank advises the government on economic policy issues and the government does not take any important economic policy decisions without first listening to Eesti Pank's opinion. Eesti Pank speaks mainly on questions of price stability and financial stability, but also on matters that affect the competitiveness and long-term growth of the Estonian economy and on which Eesti Pank is sufficiently knowledgeable, and that relate to the core mandate of the bank.

Several choices that are important for the development of the Estonian economy are only indirectly connected to the main focuses of the central bank. Eesti Pank is ready to provide a discussion platform for experts in analysing such choices. To encourage discussion and explain better the work of the central bank, Eesti Pank is creating an open centre called Rahamu that is accessible to the public and open to partners, and in which discussions will be held and the operation of the economy and financial system and the role of the individual in it will be explained, as will the work of Eesti Pank and the European Central Bank.

Modern forecasting and economic analysis uses increasingly varied types of data and the connections between them. Eesti Pank plans to start using a collection of microdata that combines different registers and databases for its own analysis and for the advice it gives. To improve the quality of the analysis of the financial sector, it will expand the statistics for the financial sector. This particularly means more comprehensive statistics on the non-bank financial sector and the development of payment statistics. The goal of payment statistics is to provide support for monitoring of the risks of money laundering and terrorist financing across the whole financial sector.

Expected results

1. Eesti Pank is influential, advising the government and taking part in debates on the stable and sustainable development of the economy and the financial sector.
2. The opportunities for discussion offered at Eesti Pank have improved the quality of debate about economic policy.
3. Eesti Pank has a new open centre called Rahamu.
4. Eesti Pank statistics cover a larger part of the financial sector.
5. Eesti Pank uses a collection of microdata that combines different registers and databases for its analysis.

The ability of Eesti Pank and other financial market participants to carry out their core functions in the event of a crisis has become ever more important. Russia's invasion of Ukraine has brought into sharp focus the need to be more ready for the most extreme circumstances. This also means that Eesti Pank must thoroughly consider its own critical functions and make preparations for maintaining their operation.
Individual people and companies need to be able to access the money in their bank accounts in an emergency. This requires the bank transfer and card payment systems to function and the banks to have cash available. Eesti Pank should also be ready in an emergency to meet a sudden increase in the demand for cash and assist in supplying cash to the public.

Eesti Pank organises the vital services of payments and cash circulation in an emergency. The major change in the risk environment requires that the legislation allow readiness for all types of emergency and that it cover all the important parties that provide payment services and are involved in cash circulation. This needs the set of providers of vital services to be clearly defined and expanded, and the requirements for them to be updated. The providers of vital services need to produce up-to-date risk analysis and action plans for business continuity, and present them to Eesti Pank for approval. The action plans must then be regularly tested and checked jointly with Finantsinspektsioon.

In the event of a banking crisis, Eesti Pank must be ready to provide loans to banks suffering liquidity problems to support the stability of the financial system. An important part of the liquidity supply in both normal circumstances and crises is Eesti Pank's capacity to accept various forms of collateral. It is planned to increase the capacity to accept collateral both independently and together with other central banks.
For Eesti Pank to fulfil its main objectives even under unfavourable circumstances, it is important that the central bank maintain its financial independence and credibility. To achieve this, the investment portfolio has to be large enough and efficiently managed, and Eesti Pank has to be sufficiently capitalised. The central bank pays more attention when taking investment decisions to the financial risks associated with monetary policy as well as to the financial risks associated with investment, which will require greater capacity to measure the risks of the portfolio.

Expected results

1. Eesti Pank's critical processes function in any kind of emergency.
2. Eesti Pank has set requirements for the operation of the vital services of payments and cash circulation in various emergencies, and has tested the crisis readiness solutions of the banks providing vital services.
3. Eesti Pank is ready to ensure the supply of cash to the state treasury and the banks providing vital services.
4. Eesti Pank's equity has increased and the capitalisation of Eesti Pank is approaching the average in the euro area.
5. The financial risks to Eesti Pank are measured and managed using the best international practice.
6. Eesti Pank has increased its capacity to accept collateral.

Cyber attacks against companies and state institutions are becoming ever more complex and harder to detect. To be able to cope with the changing threats, Eesti Pank has drawn up an action plan for the organisation for improving cyber resilience. The aim of cyber resilience is to ensure the capacity of the organisation to continue to function in the face of a cyber attack.
It is of prime importance for Eesti Pank to ensure the reliable operational and security of the central bank's information systems, as preserving the assets and data of the bank and its ability to do its work depend on this. Security at the central bank is built on risk assessment and the best internationally recognised standards and practices, which include the Cyber Resilience Oversight Expectations (CROE) developed by the European Central Bank for assessing the cyber resilience of financial institutions. Effective work is done jointly and closely together with other members of the Eurosystem and other parties to ensure that an equally high level of security is maintained throughout the Eurosystem.

To achieve the goals of the central bank and develop the organisation of work, it is important to put in place the right solutions in the information system to digitise processes and automate routine work. In the interests of cost effectiveness, flexibility and organisational resilience, further development of ICT services considers the option of using external service providers and service-based cloud solutions, while ensuring the security is of the required level.

Expected results

1. Eesti Pank has applied measures at the CROE 'advancing' level to ensure cyber resilience.
2. Eesti Pank's critical processes are able to function even if the provision of IT services within the buildings of the bank is interrupted.
3. Eesti Pank has created new ways of digitalising and automating processes at the bank. The bank prefers to use solutions from external service providers, including cloud-based services.

One goal for Eesti Pank is to reduce the environmental impact of its activities and take account of the criteria for social and responsible corporate governance. The central bank analyses and publishes the impact that changes and risks arising from climate change and climate policy objectives have on the economic environment, financial stability, financial sector legislation, the financing and competitiveness of the economy, and monetary policy and the investment of reserves.

In setting its own targets and measures for reducing its carbon footprint, the central bank has drawn up an environmental action plan. This contains steps for applying the green office principles and the goal set earlier of limiting the need to mint new coins. It is planned to increase the recirculation of coins, which also covers explaining to the public and the government the feasibility of rounding the final amount of purchases in cash to the nearest five cents.

Eesti Pank has started applying the principles of sustainable and responsible investment in response to climate change in its reserve management. An intermediate target has been set for the equity portfolio of reducing the weighted average carbon intensity of investments by at least 50% by 2023, and then by a further 7% each year until climate neutrality has been achieved. The aim for the bond portfolio is to support the introduction of best practices and reporting standards in the market and to promote the green bond market, by investing in projects for producing renewable energy and increasing energy efficiency.

Expected results

1. Every member of staff at Eesti Pank knows about climate and environmental topics, at least as far as these relate to their work.
2. Eesti Pank applies the green office principles and has set a target of achieving compliance with the green office medium level.
3. Eesti Pank is consistently reducing the carbon footprint of its own activities following its environmental action plan.
4. Eesti Pank has helped increase the recirculation of coins.
5. Eesti Pank is adjusting its investments to reach climate neutrality in the investment portfolio by 2050.